Just two weeks ago it looked as if the Naira was heading to N250 as calls for another round of devaluation held sway. The ban on restricting 40 items from souring forex was still generating speculation just as the CBN Governor appeared aloof.


The naira closed below N230 for the first time in about a month on Friday at the parallel market and is trading for as low as N220 in some states. Some suggest it is likely to trade below N210 as early as next week and optimist even went as far as saying it could very well be cheaper at the black market when compared to the official market.

As expected there is panic in the air and many are wondering why this is happening and what next to do.

Here is a theory of what we think could happen?

With the banks now rejecting dollar deposits panic will set in for those who still hold dollars in cold cash.

They will have no choice but to sell dollars to either people who have immediate use for it or
To those who have means other than a bank of keeping it safe.

The parallel rate of FX could even at some point drop below the interbank rate as people scramble to flee to the Naira.

For those who have dollars secured in electronic form they will probably now form their own parallel market electronically.

This people will become the new Kings on the block and will sell at any rate they like irrespective of the official rate

Some of these guys will be those who earn income in dollars or business who export goods and services in dollars whilst those who will buy remain businessmen who are still determined to import banned items.

However, for the physical black market they will continue to be supplied forex by those who still have access to cash dollars in their bank accounts. However the supply could be limited and could do either of two things

1. It could just be enough to meet the demand for those who still need to access forex in the black market. For example, people who want to pay for school fees or buy a car

2. It could spark another major premium between the official rate and the black market if demand remains very much higher than supply.

To meet up with demand some people will resort to paying for invoices denominated in dollars via their Naira debit cards. Though limited, it will just be enough to meet basic domestic items

This suits the CBN well as it still keeps demand and supply in electronic forms

Some unscrupulous people may well join the business of smuggling dollars though our borders
Once they have dollars in electronic form, they simply collect cash dollars from desperate importers or politicians or corrupt businesses and then charge them a fee.

Once out of the borders and in say Ghana, they pay it into an account and transfer it. In exchange they charge their desperate customers a fee. (thanks NRI for this theory)

This new ‘deal’ will be short lived as many people will be scammed and discouraged from continuing.
The CBN will weigh up the current situation and look at the disparity between the official rate and parallel rate. At that point they can now decide whether to devalue or allow the FX market some room to float thus relaxing some controls.

Banks will groan throughout this period and see their earnings from FX decline substantially. They will put pressure on the CBN whilst business such as Dangote Cement and manufacturers will counter with pressure of their own for a more stable Naira
President Buhari will encounter some success on his corruption drive and with the help of Western Countries repatriate some stolen FX, further boosting FX reserves.

Politicians for the time being will reduce open pilfering of funds whilst businesses will have limited way of bribing corrupt government officials with FX
Oil prices will continue to be volatile putting huge pressure and the government to guard the little FX it has left. This will perhaps discourage Emefiele to relax some of the more “successful controls”.
JP Morga

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